7 Signs of a Suspicious Cryptocurrency Platform – MUO – MakeUseOf


Crypto platforms stand as the key vehicles through which you can trade, stake, lend, and borrow assets. And while there are plenty of trusted crypto services out there, there have also been cases of phony or poorly managed projects that have lost or stolen their customers’ money. Here are the warning signs you should look out for when using a crypto platform.

1. Lacking Security Features

blue bitcoin lightning graphic with lock icon

If you’re going to entrust a crypto service with your funds, payment information, private keys, or other sensitive data, it’s crucial that it can offer you adequate security measures to protect you from cybercriminals.

Take Coinbase, for example. This centralized crypto exchange offers a range of useful security features, including two-factor authentication, address whitelisting, the cold storage of almost all assets, and background checks of employees. These measures can better safeguard you from scams.

If a given crypto platform offers next to no security features, this should be considered a red flag. Either it is poorly run, or is controlled by malicious actors looking to get their hands on your funds or data.

2. Promises That Seem Too Good to Be True

bitcoin coins on top of american bills

On many crypto platforms, you can earn a little extra money via your assets. This may be done via via yield farming, staking, playing crypto games, saving, and lending your assets. While many are attracted to the idea of making money using their crypto, it’s also important to note that cybercriminals know this. And they’re willing to make big promises in order to lure victims in.

Say a platform states that it can offer you a 30 percent APY return via yield farming. This may seem great, but it is an unusually high offer that likely wouldn’t be sustainable for the platform. High APYs and interest rates aren’t unheard of, but they should be taken with a grain of salt.

The same goes for asset prices. If an exchange is listing an asset for a price that is noticeably higher or lower than its current market value, you may be dealing with a scam. It’s always best to check the market value of an asset on a legitimate site, such as CoinGecko, before buying it on an exchange.

3. Anonymous Founders

anonymous hooded figure on laptop hidden by question mark

Anonymity is pretty commonplace in the crypto realm. Crypto traders often value anonymity, but things get a little more complicated when it comes to founders.

If the founder of a crypto platform is anonymous, this shouldn’t immediately be considered a bad thing. Some crypto developers prefer to stay anonymous to protect their identities. But an unknown founder, or group of founders, should be taken into account along with other factors.

Even anonymous crypto founders often have a social media presence for marketing, announcements, updates, and promotion. So if you’ve noticed that the founder of a crypto platform is both anonymous and has no online presence, this may be a bad sign. After all, cybercriminals will try to minimize their digital footprint as much as possible to avoid being tracked by law enforcement.

It’s also best to know a little bit about a crypto platform’s founder, or founders, before entrusting it with your money. After all, a platform’s founder could have previously run a poorly managed or illicit service or may be known throughout the industry as something of an ominous figure. Of course, it’s better to know about this beforehand, so doing your research is important.

4. Zero Fees Across the Board

calculator and notepad on top of money

Fees are pretty standard on crypto platforms, especially exchanges. Maker fees, taker fees, staking fees, withdrawal fees, and deposit fees are all commonplace on crypto exchanges, which is obviously frustrating for users who would rather trade free of charge.

Certain crypto exchanges don’t charge any trading fees, which may seem like a big plus. But some platforms charge a slightly higher price for assets in order to make up for the lack of trading fees. These exchanges can be totally legitimate, but it’s important that you’re aware of any caveats before you start trading.

But the allure of zero fees can also be a ploy used by cybercriminals to lure in victims. So it’s vital that you look out for other warning signs and read up on the platform in question before you spend a cent.

5. Unclear Liquidity Sources

question mark in front of pile of money

Crypto platforms often use liquidity providers, or market makers, to offer assets to users when they trade. A lending platform, for example, may use multiple streams of liquidity from a range of providers in order to maintain operations. Examples of the biggest market makers in the industry include Wintermute, GSR, and Kairon Labs.

If a crypto platform doesn’t provide any information on its sources of liquidity, this could be a red flag. If a platform doesn’t have any legitimate liquidity providers, it likely won’t want customers to be aware of this. So make sure you check a platform’s associated market makers before signing up.

6. No Customer Verification

anonymous figure wearing a hoodie

Many crypto services have some form of customer verification that a user must complete when they create an account. This allows the platform to ensure that they’re dealing with a real, legitimate person.

This often relates to KYC, or Know Your Customer, a guideline that financial services should follow in order to authenticate the identity of their customers. This allows institutions to better protect themselves against fraud and money laundering, two popular cybercrimes in the crypto world.

If a crypto platform you want to use doesn’t require any kind of identity verification, it may not be very well-equipped to mitigate crypto-based crimes, which could put your assets at risk.

7. Sudden Trading and Withdrawal Halts

exchange graph displayed on computer screen

Sometimes, a crypto company will halt withdrawals and trading services, meaning customers cannot put their money elsewhere or buy and sell assets. Platforms often do this when they’re facing severe liquidity issues, so they therefore cannot fulfill the financial requests of their users.

Of course, this is a major issue. People trust in these companies to keep their money safe and maintain a steady flow of liquidity. When this isn’t done, customers can lose hundreds or thousands of dollars.

We saw this happen in the QuadrigaCX scam. QuadrigaCX was a popular Bitcoin exchange that halted all withdrawals in 2018 amid a severe crypto market crash. It turned out that QuadrigaCX was nothing short of a Ponzi scheme, wherein the CEO, Gerald Cotten, was using one customer’s money to fulfill the withdrawal request of another.

When the 2018 crash hit, people began withdrawing their funds en masse from QuadrigaCX, until Cotten could no longer fulfill the requests and paused them suddenly before hitting the road with the remaining money.

We also saw FTX pause withdrawals in late 2022 shortly before filing for bankruptcy. It’s clear that a withdrawal pause can often be a sign of impending downfall.

Be on Guard When Trading Your Crypto

There are plenty of cybercriminals who want to get their hands on your crypto funds. Some will go as far as to develop entire platforms dedicated to stealing customers’ money. So, when you’re choosing a crypto platform, be sure to look out for the warning signs above so that you’re sure you can trust it with your assets.

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About the Author: Kate